Several sources point to Spectrum Pharmaceuticals as an obvious candidate to assume ownership of the Danish biotech company, Topotarget. The question is whether Spectrum is deliberately stalling submission of a registration application for candidate drug, Belinostat, for the treatment of peripheral T-cell lymphoma (PTCL) to the FDA in order to acquire Topotarget at a discount - because the acquisition itself is a very real scenario.

“I’m not so sure that there are that many development opportunities left for Belinostat. I’m not so sure that they can get it approved for 6-7 different indications just like that. Or, they might be able to, but it would require huge investments. I really don’t think that's what Spectrum is looking for. I think they are looking to buy the company at a price in the region of 3-4-5 (DKK per share, ed.), but it is contingent on achieving FDA approval for Belinostat in PTCL,” Peter Aabo, analyst in Nordic Bio Investor, tells Medwatch in an interview.

Topotarget CEO, Anders Vadsholt, merely points out to Medwatch that there have been rumours of a takeover ever since the two companies struck a partnership deal.

Part of the game

Topotarget still has a relatively high cash burn, but according to Anders Vadsholt there is enough money to last at least 12 more months, however, Peter Aabo is more sceptical.

“Topotarget is set to run out of cash within the next 2-3 quarters, if Spectrum doesn’t move on this. That’s also the reason the share price has dropped off. The market becomes increasingly uncertain because the company has such a small cash reserve,” says Peter Aabo.

Topotarget will receive a milestone payment of 1 million shares in Spectrum and 10m dollars when the FDA accepts the submission of a registration application. Moreover, the company is set to receive a cash milestone payment of 25m dollars upon FDA approval of Belinostat. The first milestone is expected for Q1 2014, while the second is set to be triggered in Q2 2014 – add to this, royalties, which are usually in the double digits.

Could you imagine a scenario in which Spectrum would actually stall the submission of an application until Topotarget runs out of money, so Spectrum can acquire the company at a discount, as the alternative is closing the shop?

“That’s definitely what they are doing, in my opinion. And I don’t think it’s a coincidence that the Spectrum share is plummeting, or at least has been. I have no doubt that they are speculating in getting Topotarget at as low a price as possible. It’s a race against time, to see if they can push Topotarget’s share price all the way down. If the share ends up dropping to a rate of DKK 0.5, then an offer of DKK 2 per share suddenly looks very, very favourable. It's definitely a part of the game being played at the moment,” says Peter Aabo.

Selling cheap

With 143,317,114 shares at a price of DKK 2.58 per share Topotargets market value is just shy of DKK 370m (USD 65m). Considering both milestone payments and the relinquishment of 1 million shares, the near-term expenses for Spectrum to Topotarget totals almost DKK 250m (USD 44m), plus royalties of future Belinostat sales.

Spectrum’s main focus is on the US market, but should the candidate drug gain FDA approval, it would be possible to take Belinostat on to the European market as well.

“When Spectrum submits an application to the FDA, which I expect they will, it indicates that they see a sales potential. If they want to enter the European market they have to conduct another phase III study with a control arm, which is highly costly. It’s not so clear cut,” says Peter Aabo.

But it is definitely doable, and should the company succeed, Spectrum will hold global rights for the drug. The company can then choose to sell European marketing rights to a third party.

What supports the case against an acquisition of Topotarget is, for example, the risk of a relatively high acquisition premium, as well as the fact that Topotarget takes care of a large chunk of R&D costs for future studies, due to the deal between the two companies. It means the milestones are reinvested in Belinostat studies, whereas Spectrum would take on all expenses going forward in the case of an acquisition.

Several reasons

CEO, Anders Vadsholt, has previously explained to Medwatch why the company chose to postpone the registration application to the FDA. According to the top chief, the decision was made following an initial meeting with the FDA regarding the specific contents of the application.

FDA saw no real red flags, but requested additional peripheral data and a change of the format for efficacy data. These had to be arranged in a manner that allowed the agency to do their own calculations of the company’s results.

According to Anders Vadsholt, Spectrum has the final say over the submission of an application, but he say the timing of such an application is decided upon in close collaboration with Topotarget.

Cold feet

Peter Aabo believes the current market is unsure of whether there will even be an application. The analyst definitely thinks there will be, but there is still a slight risk of failure, because the postponement could be sign of a lack of faith in the preliminary data.

“If the reason for the delay is that Spectrum has gotten cold feet, then it is a real problem. Often when authorities go over these response data the percentages drop slightly, as there are differing opinions about what constitutes a response. I don’t believe that is the reason for the delay in this case, but there is nevertheless a small risk of that,” says Peter Aabo.

Topotarget only has one major shareholder, investment firm HealthCap, which owns somewhere between 5 and 10 % of the company. The investment firm also has ownership shares in Swedish biotech company, Orexo, which Novo A/S holds a 29.6 % share in as well. All additional Tootarget shareholders have a less than 5 % stake in the company.

“Generally speaking, I can’t imagine that shareholders would have any problem accepting a shareoffer of around 4, for example, when the current price is around 2.5. I don’t think it will be difficult to convince shareholders, because the only real alternative is basically to see the company go bankrupt,” is the assessment from Peter Aabo, when asked how Topotarget’s shareholders would react to an acquisition attempt.

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- translated by Martin Havtorn Petersen

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